Capital Gains Tax: What Do You Need To Know
Deciding to sell your home, business or buy to let property is a big decision and requires a great deal of research, planning and decision-making. When going through the process of selling your property, you should consider the effects of Capital Gains Tax, whether you actually need to consider this particular tax and if so how much you’ll be required to pay.
Simply put, Capital Gains Tax is the tax deducted from the profit you’ve made on the sale of your property. It is likely that your chosen asset (such as your house) will have increased in value and it is this profit that will be taxed, rather than the total amount of money you will receive, following the standard legal and agent costs.
If you’re selling the only property that you have lived in, you may not have to pay this tax. It is applicable on properties such as second homes, business premises, buy to let properties and valuables such as jewellery or antiques. You may also be required to pay tax on properties you own abroad.
You may be wondering what Capital Gains Tax means if a property is in probate. Probate experts Spring explain that if the property was not sold before the owner passed away, then no Capital Gains Tax should be paid. However, if the property is sold and the value of the home increases during probate, then the tax will need to be paid. In this instance, the beneficiaries will receive the probate value.
When discussing a buy to let property, the amount of tax will vary depending on how the property was purchased. Considerations include whether the property was purchased jointly, the profit made on the initial investment and even the timing of the sale. This is also the case for land, a property you may have inherited from family, or even a warehouse premise for business purposes.
The amount of Capital Gains Tax is calculated on an individual basis – there is a calculator on the Government website which allows you to gain a clearer idea of the total amount. This calculation considers how much tax you currently pay, where it’s the basic amount or the higher rate.
Spring have explained that there are a number of ways in which you can reduce your Capital Gains Tax or avoid paying it at all. One notable method of reducing the amount you pay is to get an ISA. Any gains made whilst the money is in that account will not be subject to tax; in addition to this, lowering your income with regards to tax bands, as well as deducting expenses that you’ll be subjected to pay when selling your property.
If you are selling a property that is not your only property in which you live, Capital Gains Tax is unavoidable. However, the amount you will need to pay will be calculated on an individual basis, depending on a range of factors and circumstances. Amounts can be reduced so make sure you do your research and refer to the Government website if any aspect is unclear.